European Lingerie Group AB (ELG or the “Group”) publishes the audited Annual Report, the Sustainability Report and the Yearbook for the year ended 31 December 2019.
“The delivery of the Annual Report 2019 was delayed due to the ongoing discussions with the Bondholders, but having finally agreed on the standstill and the best way forward to resolve complex situation of the Bonds, we were able to approve and sign it on 17 August 2020,” commented Mr. Indrek Rahumaa, CEO and Board member of the Group.
In 2019, the Group invested into property plant and equipment and intangible assets almost EUR 3 million. The main investments related to several pieces of production equipment acquired by LSEZ Lauma Fabrics SIA and investments for Magento upgrade project made by Dessus-Dessous SAS. Last year, in order to expand operations and add capacity for private label and Senselle by Felina production the Group acquired Yustyna Ltd (subsequently renamed to Senselle OOO), a lingerie ready garment producer in Belarus. In addition to this, the Group continued investing in its new sewing plant in Belarus, whereby it increased the number of sewing machines and developed a new material cutting facility, which is necessary for sewing operations. In May 2019, Senselle OOO obtained the Business Social Compliance Initiative A grade certificate, being the first lingerie producer to obtain BSCI A grade certificate in Belarus and also in the region.
“We are certain the certificate will raise the reputation of Senselle as a socially responsible business and offer more value to its customers,” noted Mr. Rahumaa.
The Group’s sales amounted to EUR 77.6 million in 2019, representing a 0.1% increase as compared to pro forma sales of 2018. The increase was mainly a result of the increase in lingerie segment due to growing revenue of new Senselle by Felina brand. Additional positive revenue effect was achieved by renegotiating the stock consignment agreement with the largest customer in Spain. On the other side, some of the revenue increase was outweighed by backlog in production of the lingerie ready garments in Hungary which reduced total absolute increase for 2019.
Profitability margins excluding net profit margin in 2019 were below 2018, which is explained by a change in accounting estimate for write downs of finished goods in Q3 2018, which improved the performance in 2018 at the expense of other quarters, resulting in a weaker 2019 in comparison. Normalised EBITDA in 2019 amounted to EUR 8.8 million and decreased by 15.8% compared to pro forma normalised EBITDA in 2018 Normalised EBITDA margin in 2019 and 2018 was 11.5% and 13.6% respectively.
Normalised net profit in 2019 amounted to EUR 0.1 million, compared to pro forma normalised net profit of EUR 0.2 million in 2018. Normalised net profit margin in 2019 and 2018 was 1.1% and 0.2% respectively. Improvement in net profit margin was due to recognition of the deferred tax income on Liepaja Special Economic Zone tax incentives to be utilized by LSEZ Lauma Fabrics SIA in future periods equal to 35% of the amount of qualifying investments into property, plant and equipment made in 2019. In addition to that, the German subsidiary of the Group Felina GmbH had smaller taxable profit to be offset with carried forward tax losses from previous periods. This didn’t influence current income tax payable, but deferred tax expense from utilisation of tax losses was only EUR 0.4 million in 2019 (2018: EUR 0.8 million).
Financial performance of the Group above was analysed on the basis of the reported financial information of European Lingerie Group AB for the year 2019 and pro forma financial information for the year 2018. As the Group adopted IFRS 16 Leases starting from 1 January 2019 and the impact of the standard is material, 2018 pro forma figures were adjusted as well to include the impact of IFRS 16 for better comparativeness.
Core operating markets for European Lingerie Group are Germany, Spain, France, Poland, Benelux countries, Baltic countries, Russia, Belarus and Ukraine. The Group’s sales in its core markets in 2019 were 81.8% of its total sales against 83.7% in 2018.
The largest growth in sales in 2019 was in Russia, Spain and Belarus. These markets grew by 26.2%, 12.9% and 10.5% respectively in 2019. Sales in Russia in 2018 were very limited due to postponement of orders by two largest Felina and Conturelle distributors in Russia. 2019, in its turn, did not have extraordinary circumstances; thus, the sales were at a normal level with the growing trend. Russia is also one of the main customers for Felina swimwear and Senselle by Felina lingerie ready garments, which pushed the sales up even further in 2019. Sales in Belarus grew in the textile segment of the Group and was a result of the growth of medium lingerie sewing companies in the country. The increase in sales in Spain was a result of the renegotiated consignment arrangement agreement with the largest customer in Spain explained above, which brought additional revenue in the amount of EUR 0.4 million recognised in December 2019.
The largest growth in sales in 12 months 2018 was in Poland and it was mainly achieved through expansion of the Group’s lingerie products’ presence in the retail channels in this country. Sales in Germany and Benelux increased by 1.6% and 1.9% respectively in 12 months 2018, which is a result of the stable economy and the Group’s strong position in these markets.
Poland showed a slight decrease by 1.9% in 2019, which is explained by price competition in that market.
Sales in Germany, France and Benelux decreased by 6.2%, 11.9% and 10.7% respectively in 2019 due to the slowdown of the European macroeconomy and blocked potential growth. In addition to that, due to the merger of the two largest German department store chains Galeria Kaufhof and Karstadt, their purchasing in 2019 was significantly slowed down during the transaction process. The balance of sales growth vs margin was still the main issue in France as the Group’s main competitors in the region continued suffering and tried to improve their sales by reducing prices and offering higher discounts to customers not only for previous season collections, but also for novelties. In part of these cases the Group chose not to follow the general price trend and to better sell less, but at better margin.
Sales in the Baltic countries reduced by 15.9% in 2019 and it related to the textile segment of the Group. Most of the Baltic customers of the Group suffered from changes in the importing rules into Russia and as a result, did not have quick enough capital turn to continue ordering raw materials. In addition to that with continuing labour inflation in the Baltics, some customers could not recover the previous level of turnover due to lack of price competitiveness in their sales markets.
European Lingerie Group AB Yearbook 2019 is available for viewing and download here, the Annual Report 2019 here , the Annual Report 2019 presentation here and the Sustainability Report 2019 here.
This information is information that European Lingerie Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out below, at 16:20 CET on 24 August 2020.
For more information, please contact:
Head of Strategy, M&A and IR
European Lingerie Group AB